Disabled not using all their tax breaks

Taxpayers with disabilities or who have disabled family members are probably not making full use of the tax deductions to which they are entitled, a tax consultant who specialises in assisting families affected by disabilities says.

Eugene Bendel, a chartered accountant and founder of Bendels Consulting, says statistics provided by the South African Revenue Service show that only about 27 000 taxpayers received deductions for expenses related to disabilities in 2010.

However, Bendel says, it is realistic to assume that about five percent of the population suffers from disabilities.

A simple estimate of five percent of the taxpayers who were assessed in 2010 – some 4.2 million taxpayers – shows that just less than 214 000 taxpayers should have claimed for disabilities.

In addition, those who did claim tax deductions for expenses related to disabilities claimed R1.12 billion in deductions in the 2010 tax year, Bendel says. This amounts to an average of R41 500 per taxpayer.

However, Bendel says in his experience taxpayers with disabilities or who have a disabled family member should be claiming an average of R150 000 a year for their expenses.

Bendel says his clients have an average tax rate of 33.3 percent and for them a deduction of R150 000 amounts to a tax refund of R50 000.

Recently, Tana Russon, senior associate at Bendels Consulting, assisted three taxpayers who have disabilities or whose family members are disabled.

One taxpayer whose family member has autism successfully claimed a deduction of R199 039 for medical and other expenses related to the disability for the 2011 tax year, Russon says.

A second taxpayer, whose speech and language delays require ongoing neurological examinations, was allowed a deduction of R28 680 for medical scheme and other expenses, but Bendels Consulting found that his expenses in fact amounted to R346 380 and lodged an objection. As a result, a reduced assessment was issued and the taxpayer obtained a refund of R127 080.

In his 2010 tax return, a third taxpayer submitted a claim for R29 468 that he believed he could claim for expenses related to a rare genetic disorder, Wilson’s disease. However, Bendels successfully enabled him to claim a tax deduction of R70 018.

Bendel says a lack of knowledge by taxpayers and their tax practitioners is the reason taxpayers affected by disabilities are not claiming the tax deductions to which they are entitled.

WHAT EXPENSES CAN YOU CLAIM?

There are three broad categories of disability-related expenses you can claim against your taxable income.

The three categories are:

* Medical scheme contributions;

* Unrecouped medical expenses; and

* Expenses you necessarily incur as a result of a disability. These expenses are the most complex and often result in the highest deductions, Bendel’s Consulting founder Eugene Bendel says.

A significant change in the tax deductions for medical expenses and disabilities came into effect in 2009 (for the 2009/10 tax year), when the deductions allowed for people defined in the Income Tax Act as “handicapped” were replaced with a deduction for people with more broadly defined “disabilities”.

The Income Tax Act defines a disability as a “moderate to severe limitation” of the ability to function or perform daily activities as a result of a physical, sensory, communicative, intellectual or mental impairment. This is interpreted to mean a significant restriction in your ability to function or perform one or more basic daily activities after maximum medical correction.

Your disability or that of a family member (including children) must either have lasted for more than a year or be expected to last for more than a year, and you must have been diagnosed by a registered medical practitioner (anyone registered with the Health Professions Council, including speech therapists, occupational therapists and psychologists).

The change in the definition means that taxpayers can claim for a much wider spectrum of disabilities than those of which you may typically think. For example, one in every 110 children has autism, many people suffer from attention deficit hyperactivity disorder, and the treatment of severe depression and learning difficulties could be tax-deductible, Bendel says.

Until the tax year that began on March 1, 2012, taxpayers with disabilities or who have disabled family members could claim from their taxable income their medical scheme contributions, as well as their unrecouped medical expenses, for all the members of their family.

From March 1, the deduction for contributions to a medical scheme has been partially replaced with a tax credit, or rebate, for all taxpayers other than those over the age of 65.

The change could have a relatively small negative effect on the deductions available to taxpayers with disabilities or who have a disabled family member and who are on a marginal tax rate of more than 30 percent.

The rebates are up to R230 a month for the main member and first dependant and R154 a month for each of any further dependants registered on a medical scheme.

Where the medical scheme contributions exceed four times the tax rebate (R920 a month), the taxpayer with a disability or disabled family member may deduct the excess contributions in full, together with any medical expenses not recouped from the scheme.

The other expenses necessarily incurred as a result of a disability are, however, likely to be more significant, Bendel says.

The South African Revenue Service (SARS) has published a list of qualifying disability-related expenses, which, it says, is not exhaustive.

Bendel says in practice allowable expenses are often not listed, but this does not prevent you from claiming for these.

SARS’s list simply provides some examples of expenditure that can be claimed, and many more substantial expenses have been claimed successfully, Bendel says.

The list includes aids and devices, such as hearing aids and insurance of hearing aids; orthopaedic or surgical equipment; wheelchairs and crutches; travel and related expenses; the cost of hiring a caregiver; remedial school fees; products required for incontinence; and the cost of modifications to assets.

While you cannot claim for an asset itself – for example, a motor vehicle – you can claim for the cost of modifying a vehicle to permit a person with a disability to gain access to it or to drive it.

Bendel says substantial capital expenses, such as those incurred in altering a home for a person in a wheelchair, nevertheless remain fully tax-deductible.

Bendels Consulting® was founded in February 2007 and is a niche tax consulting practice. For the past nine years we have specialised in the provision of tax compliance and tax law advisory services to individuals where there is a “disability” in the family.